Wednesday 2 December 2009 07.52 EST
First published on Wednesday 2 December 2009 07.52 EST

When Martin Eceku, 62, from Katine, in north-east Uganda, found out that oil had been discovered on the country's western border, he says the find could reduce transport costs in the region. And if jobs are created in the oil industry, perhaps children from the sub-county could head west for work. He recalls the period of Kenya's post-election violence in early 2008, when fares for the 30-km journey from the health centre in Katine to the nearest town of Soroti town shot up from UShs 2,000 to UShs 10,000.

Eceku, who suffers chronic chest pains, has not made the connection between oil, government revenues and how it has the potential to improve his life, and that of the poor service delivery in much of rural Uganda. This financial year, Katine's budget for developmental activities works out to be around $2.30 for each of the estimated 30,000 residents. The main Tiriri health centre is under-staffed and often suffers shortages of essential medicines.

But it's a connection that is being made many Ugandans.

Economically, these are interesting times for the 30 million people living in Uganda.

In October 2006, Uganda confirmed it had struck oil, after more than 80 yeas of official suspicion.

The president, Yoweri Museveni, who once described himself as "not a very religious person", held a national prayer ceremony where he thanked God "for having created for us a rift valley 25 million years ago", and the successive layers of vegetation that had turned into good quality petroleum. The president also thanked God for giving "us the wisdom and foresight to develop the capacity to discover this oil".

Three years later, on October 9, as Uganda marked 47 years of independence from Britain, Museveni's national address was less about God and more about his certainty about the future.

"No one, in Uganda or internationally, can now doubt the country's steady and deliberate path to a middle-income country status in the near future," he said in Kampala. "This is more so with the reasonable discoveries of oil, which, without any doubt, will accelerate our progression to middle-income country status… With the recent discoveries of oil in western Uganda, the country's prospects for domestic revenue and self-reliance in financing public investments and programmes are much brighter today than any other time in the past."

Museveni's buoyancy is well-founded. Exploration companies have confirmed hundreds of millions of barrels of oil in the Albertine Graben region – some 23,000sq km along Uganda's border with the Democratic Republic of the Congo (DRC). Officials from Tullow Oil, the most dominant of four companies with exploration licenses, recently revealed that their find alone – 800 million barrels – could yield more than 100,000 barrels of oil per day for anywhere between 15 to 30 years. Given that exploration has so far covered only a third of the Albertine Graben area, a senior government geologist recently told the government-owned New Vision newspaper that Uganda's extractable deposits should be in excess of 2 billion barrels.

Uganda currently needs only 11,000 barrels of oil per day, which means there would be a lot of potential to export.

Tullow officials estimate that at present prices, Uganda's oil would be worth some $2bn per year, which amounts to around two-thirds of the country's budget for the current financial year.

And with the Italian oil Eni announcing last week that it is buying a stake in two exploration blocks in the country, predictions are now that Uganda could soon become one of the top 50 oil producers in the world.

Complex journey

Since 2006, Museveni has said that any money from oil, when production eventually starts, will be used to fund government programmes, like energy and transport infrastructure. He repeated this message in October.

But the journey from the first oil-find to the first litre of refined Ugandan oil is proving to be less than easy, with many questions and no obvious answers. After initial fears that the oil found was not of sufficient quality or quantity to make it commercially viable were disproved by successive finds, the issue then became what to do with Uganda's crude?

Many in the industry thought Uganda should pump its crude to the refinery in the Kenyan port city of Mombasa – some 1,200km away, get it refined, take back the end product it needs and export the rest. But the president, a crusader for pre-export value-addition, put his foot down. He wants Uganda to add value to its oil so it gets the maximum gains. He is winning that debate, and he announced on independence day that a refinery would soon be built in Uganda. Tullow Oil, which has invested around $500m in the exploration process, says that the type of refinery and the commercial arrangements are still being discussed. But one option being considered is an initial mini-refinery within the next two years to produce diesel, kerosene and heavy fuel for power-generation.

Hidden details

As those discussions continue, Ugandans are asking how much of the oil proceeds will go into government coffers and how much will be taken by the mining companies. In a country where successive UN human development reports have shown that the poor are getting poorer and the rich richer, there is fear that Uganda's oil may end up benefiting a few instead of the masses who desperately need services.

The government has so far refused to disclose the production sharing agreement (PSA) it has signed with the oil companies, and the oil companies say they are bound by corresponding confidentiality clauses.

This has raised more curiosity and suspicion. But in a recent interview with New Vision, Tullow's chief executive officer, Aidan Heavey, claimed the PSA states that the Ugandan government would get 80% of the oil revenues, while his company would get 20%. Some observers are now questioning why, if the deal is that good for Uganda, the government is hiding it? The devil, said one writer in the Daily Monitor newspaper recently, is often in the detail.

In Katine, people who are realising that the rumours about an oil-find are true have ideas of how they would like the money spent.

Margaret Ayuro, a 40-year-old mother of eight from Abule village, hopes money from oil will be used to improve health services. Not only are there no drugs in health centres, but there aren't enough government clinics in the sub-county. Of the six parishes in Katine sub-county, only one has a health centre.

"The government should use the money to put drugs in our health centres," said Ayuro. "And for people with HIV, for instance, why can't government make sure that they get drugs and other forms of support?"

Does she see that happening? "I believe God will make the government help us, since he has opened our eyes to be able to see that oil."